WEDNESDAY 18 JULY 2007

Mr Peter Kendall, Mr Martin Haworth and Ms Carmen Suarez

  Q120  Lord Cameron of Dillington: Just to go back to what Martin was saying, you do foresee, some time after 2013, even area payments and the support generally being phased out, do you?

  Mr Haworth: There are two possibilities. Either that they will start to be phased out or their nature will change and they will be for something specific, and they may be permanent in that case. That is a debate that has to take place at some point.

  Q121  Chairman: Could you just continue a little on the "something specific"?

  Mr Haworth: There are people who are advocating that the payments change in their nature to be a payment for environmental goods or for rural development or for the coming European rural policy. There are areas there, where there are payments for services which are cases of market failure, where there is a justification for a permanent payment—so long as the market failure exists. It becomes quite a kaleidoscopic picture, made up of different elements here. Part of the justification of the payments is a transition, if you like, away from price support, and part of the payment might be justification for a permanent market failure; so providing services which the market will not provide, like environmental enhancement.

  Mr Kendall: We try, as an organisation, to be very engaged in this sort of discussion. I can promise you that, in Europe, there is always this challenge. When I was first appointed deputy president, I remember sitting in the COPA Council, where they asked for any comment on decoupling first. Of course I gave the NFU's line, that we were very engaged with government about finding ways of fully decoupling—to find that I was followed by 26 people who told me that I was unhinged, in all senses and purposes! So, when we talk about phasing out, when we talk about how they are used, we want to be part of a debate that does not disadvantage English or UK farmers but shows a pragmatic concern about how the industry moves forward. Comments have been made about my background in farming, but there are parts of the United Kingdom in less favoured areas, where they manage really critical parts of the environment, where we will have to be engaged in a quite proactive way to avoid abandonment and cessation of important parts of landscape management and farming.

  Q122  Viscount Ullswater: That comes on quite neatly to the question which I am going to put to you. In your paper you point out quite strongly that set-aside has no place in a decoupled system and you want to see it abolished immediately. Also, in your paper you say that farmers will increase or decrease their area of arable crops according to forward pricing. I think that you have given us an indication of your own views about how that stimulus could work. However, some witnesses have said that set-aside has had some environmental benefit and they would not want to see that benefit lost in a transitional period. I think that you also claim that it can be achieved by other means. I would like you to identify what means you think those are. As to your last comments about other landscape features—the fells in Cumbria, for instance—you either want to keep the sheep on or you want to reduce the number, or whatever it is, in order to keep them in good repair. Is that not in a way a market distortion as well? How can we get these environmental benefits that we want and perhaps avoid being accused of market distortion?

  Mr Kendall: Perhaps I could start with the set-aside question. I think that there is an enormous hidden impact in set-aside. To me, it almost epitomises an indifference to productive land. It almost says, "We don't need this as a resource". I think it is a really dark cloud that hangs over agriculture and I hope that we can move away from it as soon as possible. On my farm I am allowed to grow industrial crops on my set-aside, so that is how I would utilise my set-aside land—which is allowed through EU rules already at this moment in time. On Monday this week, the Commission recommended that it be set at 0% for next year; so we are seeing the impact of set-aside already being reduced and underway. Where I am nervous about the reactions to the environmental benefits is in how you use set-aside. Some people used set-aside in grass margins, by woods, next to hedges, next to watercourses, et cetera, and took a percentage out on a semi-permanent basis, and that made a big environmental impact. I have spent some time recently at the Game Conservancy Trust at Loddington. Many of you will be familiar with some of their work. They have 60 scientists analysing the impact of environmental management on the countryside. I am not sure if it is an official term but, when they see us spraying off set-aside, they refer to it as the "slash and burn" management of set-aside. That would not have positive environmental benefits. Therefore, we do see environmental benefits from where we are semi-permanently managing margins of grass areas, maybe through other cover-crop management. Where, in the majority, it is being used on a rotational basis, the environmental benefits have been much less significant. I would refer you to the Game Conservancy Trust to give you detailed analysis of what that has been; they are pretty scientific in their analysis, and they say that it would be quite small. That is what leads us to our recommendation that there are other ways of delivering the environmental gains. We have to look at the agri-environment schemes that are currently in place. I am actually an enormous optimist about what is occurring in the countryside at this time. We have a whole host of factors that are coming together. There is decoupling. I still hear people talking about over-grazing, but the drivers for over-grazing, for stocking levels that are not economic, are not there now. The payment to put more livestock units on a hectare are no longer there, because of decoupling. The impact of cross-compliance is very significant in terms of farmers' behaviour. It is not just about the periods when you cannot plant your hedgerows or your margins; it is any discretion to those areas, and you lose a significant amount of your payment. I think that it has people focused much more on that resource protection, therefore, than just the simple cross-compliance might indicate. Add on to the decoupling the cross-compliance, the Entry-Level scheme and the agri-environment schemes that are now right across the board—over four million hectares in Entry-Level schemes and agri-environment schemes—and I think that we are seeing an explosion of good environmental outcomes in the countryside. Do we need to monitor that explosion of good outcomes before we rectify any negative impact from set-aside? Or do we look to—and I think that the Game Conservancy Trust are very well placed to do this—understand what the impact of removing set-aside will be, and then look at any small adjustments that might need to be made in agri-environment schemes to deliver those outcomes? It is very easy to say that we have to replace all that land that is currently set-aside with other agri-environment schemes. Let us look at what we need. Let us measure what is being delivered. If we project five years forward—and I see that the margins that have gone in around watercourses, the hedgerow management is different, the new planting of woodland and hedgerows—I think that we are seeing some fantastic outcomes in the rural environment. We have not touched on landscapes. The other point was about distortion if we try to keep livestock or types of production in other areas. I think that one of the major conundrums for us is that the payments need to be for the environmental outcomes. It will, I am sure, cause somebody to say that there is livestock in an area that otherwise would not be there; therefore their production has the potential to overhang the market. That is a concern and a conundrum which we face, and it is one where the priorities have to be weighed up.

  Viscount Ullswater: It will be a conundrum which remains.

  Chairman: Let us move on to climate change.

  Viscount Brookeborough: You support very strongly the EU commitment to 20% of energy production and 10% of transport fuel from renewable sources. What changes do you foresee in land use with these targets coming in? Do you think that government is supporting them strongly enough?

  Q123  Chairman: The other one is: do you think that they are achievable?

  Mr Kendall: What changes to land use? Again, I think that the market will make some of those decisions: to choose to say whether it incentivises, or whether we find, for example, that willow and miscanthus have a stronger demand for land use rather than the conventional crops, such as those which I grow. I am aware that there have been a couple of large bioethanol announcements. BP and ABF made a big announcement a couple of weeks ago, to use over a million tonnes of wheat as their primary feedstock. British Sugar have their ethanol plant involving sugar beet, which they are looking to use. There is also a private equity-backed business, Ensus, which is also building another one in the North East, which will take in excess of a million tonnes of cereals. We think that will meet the UK's target of 5% by 2010 for petrol, because the ethanol goes into the petrol market. On the point of whether the Government is doing enough, I think that the Renewable Transport Obligation will drive the 5% from the UK sources and I think that will be done largely from traditional patterns of cropping.

  Q124  Viscount Brookeborough: But this will be a distortion of the market, will it not, because it is false?

  Mr Kendall: We have to look at the calorific values of grain. If I go back to my grandfather's days on the farm, a third of the farm would have been growing oats for feeding the horses to provide the horsepower for the cultivation of the land. A third of the farm was traditionally used for powering the farm. Looking at today's values of oil, I think it has come off its peak of $78 to about $76 now. That delivers a calorific value of wheat, just for burning, of in excess of £110 a tonne. It is a new dynamic between food, fuel and energy which, when oil was $20 a barrel, was not in people's consciousness. There is now a new dynamic that we will live with, and it will put a new tension into the marketplace. Where the big potential comes for the 20% by 2020 is both in new technologies and in by-products and waste. There are some really great examples. Bedfordia, who now call themselves Biogen, have their anaerobic digestion plant not very far from where I farm in Bedfordshire. They are taking green waste. It was on the news on Monday night, and they were shown collecting waste, for example from the food industry in Bedford and Milton Keynes, which was going into the pig slurry, and in turn producing methane which is burned off for renewable electricity generation. They are helping with the waste product collection and green waste in Bedford and Milton Keynes; they are helping make the slurry, which otherwise would be more of an environmental challenge for them. They have much more stable digesters as a result, and they produce green energy. The fourth win, I like to think, is that it is also a great positive for farming—about the smart solutions we can deliver. I think that anaerobic digestion could help us meet some of these targets quite ambitiously. When I look at the straw on my farm—and at the moment I chop every single acre of straw—I see the quarter of a million new homes that they wish to build every year for the next 15 years, and the directives now to put more and more district combined heat and power in place, into those new developments, we can see smart ways of using by-products, co-products from agriculture to help do that. We also have to look at our forestry as a resource. I think that we can go a big way towards the 20% by 2020, but also we have the other opportunities of second-generation renewable fuels, biofuel, and the cellulosic technology. It is very difficult to call when that will be commercial. I know that it is up and running now but the cost, because of the way of blasting the cellulosic starch from cellulose to make that ethanol, is incredibly prohibitive at this time. To deliver the targets within Europe, I think that we need some of that second-generation. Equally, I do not think that we should have a closed mind. We have had some figures in recently from Africa, where they think there are 380 million hectares of partially denigrated land that in some way could be producing feedstock for renewable fuels. This is an opportunity, as I said earlier, for developing countries to help us produce renewable energy, drawing CO2 from the atmosphere and producing renewable energy. It is converting the sun on a yearly basis, rather than drawing on those resources from millions of years ago.

  Q125  Baroness Miller of Chilthorne Domer: I am very glad to hear you being so enthusiastic about the potential there. What I want to ask you about is biodigesters. One of the frustrations to me is that we are still hearing a lot of talk about investment in slurry storage and almost no discussion—partly following the disastrous Holdsworthy experiment in my neck of the woods—about moving to this next generation of biodigesters. Do you think that is because the message about the potential benefits have not got through enough so that the capital investment is still being looked at in just slurry storage terms? Or do you think it is because that initial step needs to be subsidised from the rural development payments?

  Mr Kendall: We had some interesting announcements in the White Paper before David Miliband moved on to the Foreign Office, advocating double ROCs, so that there would be twice the incentive for anaerobic digestion and other combined heat and power schemes. I thought that was a big incentive. Talking to people within the industry, they think that is a big incentive; that it puts us almost on a par with the German renewable energy law. ROCs are not as certain or as predictable as the German scheme. The German scheme would have given you a renewable energy price through to 2027. People were therefore bringing packages together that helped them with the finance, construction and management, and they knew that after a certain period of time they were in profit. The whole package came together in a contained way, and they were able to look at the finance over that period of time. We think the ROCs are a big incentive. The figure I have been given is that it takes from about 10 eurocents to 15 eurocents per kilowatt hour that the biodigestor would be producing. The German system starts at about 17 for the small plants and comes down to about 14 or 13.5 eurocents for the bigger plants. So we think that we are on a pretty good par. One of the reasons we need political unity behind this is to know with certainty for the long term that people can make those plans, and we can try and get people to bring these packages together. At the moment, as you so rightly said, I still hear people talking about slurry storage rather than looking at the anaerobic option. We have made some recommendations on rural development, which Martin may want to touch on.

  Mr Haworth: We do see a role for the rural development programme here and we are slightly frustrated that it has not been taken up at central government level in the form of a recommendation, if you like, for the RDAs. We do see the possibility of using part of the rural development programme to encourage things like local initiatives to produce combined heat and power, whether it be for schools or for new housing estates. We do think that there is an opportunity there, which we hope will not be missed but we are slightly concerned that it might be.

  Q126  Baroness Miller of Chilthorne Domer: Whom do you see as your major partners within this? Surely the EEA is there, trying to deal with some of the run-off issues? The RDAs could be taking action without a recommendation from central government if they had a bit more innovation, could they not? Who do you think your partners are in bringing this all together?

  Ms Suarez: It will probably have to be a combination of different actors. We must not forget that to some extent the RDAs do have access to some of the rural development funds, but 80% of the rural development funds have been allocated to help environmental schemes and for outside the domain of the Regional Development Agencies. Out of the money that the Regional Development Agencies have, they have received a strong indication from Defra as to where to allocate some of the money. Within those indications, combined heat and power, for instance, does not appear; so to a very large extent they find that their hands are tied. However, we must not forget that the Regional Development Agencies also have roles which go beyond the management of the rural development programme and they have access to other types of funds. They also have funds for the private agencies in the community and to some extent they can act as "marriage brokers", encouraging contact between providers of sustainable energy and, for instance, the people who are building housing estates and the like. I think that it is therefore establishing a partnership. It is a new area and, as such, it is very difficult to say exactly who will be the main drivers there. It is a question of communication of the benefits of working together.

  Q127  Baroness Miller of Chilthorne Domer: May I finally push you on that link with the EEA and run-off from slurry applied wet, as opposed to post-digester when it is applied dry? Is that something that has been explored as a big benefit?

  Mr Kendall: We have certainly spent a lot of time talking to the Environment Agency about that, but their budgets are very limited and so they have severe problems in that area as well. I am very keen on the principle of demand pull, rather than supply push. I use the example of the Renewable Transport Fuel Obligation. It gave certainty that the market would require 5% by a certain time period, and we have now seen the businesses coming out and making those investment decisions. I do want to see combined heat and power, for example, where, in new housing developments, they have a much stronger drive to make those a part of the planning condition, part of the driver going forward. Again, I think that we should be looking at waste disposal; ways of making anaerobic digestion part of the solution, rather than just an option going forward. If we make the demand a certainty, I think that people will find ways of business coming together to deliver those outcomes.

  Q128  Chairman: Going back to biofuels, is there not at least a theoretical danger that, in supporting the development of biofuels, we will just be introducing an old-fashioned production subsidy?

  Mr Kendall: The balance on this is whether we look at the support for biofuels as a subsidy or a tax credit. If, for example, we are producing a renewable fuel that is a 60% or 70% saving on CO2 emissions, should we tax it and treat it in the same way as we do a fossil fuel, or even the tar sands that are being pulled out of Canada, for example? If we say that we will treat them in a more balanced way and we will tax them according to their green credentials, the problem is that the Treasury does not like that or welcome that; because, if you look at what has happened in Germany, they have lost a lot of revenue. The way of providing some certainty, therefore, is not to treat it on the basis of its "greenness"—which you could ask companies to demonstrate and to show how much CO2 they were saving—but to introduce market certainty by saying, "We want to be driving this market forward", and the development and evolution. Why I think that a 5% target is so important, as we have in the UK, is because this will put in train the supply chains, the development, that will lead us to put second-generation in place. We are not talking about enormous quantities; we are talking about quite a measured response with 5%, which we think we can deliver, with some imports, through some of our set-aside land and some of our exportable surplus. It will give—with, for example, BP and Ensus building their plants up in the North East—the expertise and the technology drive that will make our adoption of second-generation, the use of the by-products, the use of straw, even the manures and slurries, a much more exciting opportunity—and realistically being able to deliver that. There was some criticism yesterday about some of the environmental impacts. Peak oil will soon be with us, whether it is with us already or whether it soon will be with us. Yes, of course, we must be more efficient in our use of fossil fuels; but we need to find other energy sources. I think that the 5% target is a small toe-in-the-water, which allows us to start driving the technological evolution that will deliver much more sustainable and better second-generation outcomes.

  Q129  Viscount Brookeborough: You mention in Paragraph 35 of your paper the greenhouse gas emissions from farming. They have recently appeared in the press, and I am not sure that the general public has focused on them previously. Could you tell us something about how you think there might be found, as you say, "integrated and cost-effective ways" of dealing with this?

  Mr Kendall: Yes, and one of them would be what we have been talking about with anaerobic digestion. If you look at the carbon emissions from agriculture, they are pretty small; they are less than 1%. Unfortunately, if you take all our other contributions to greenhouse gases, agriculture goes to 7%, because of its methane and its nitrous oxide. One of the enormous challenges—and my very first comments were about how rapidly things have changed in global terms and our focus on climate change—is that the research and development in the last 25 years has not been focused on how we work with the livestock industry to reduce methane emissions. It is quite a new preoccupation to focus on methane emissions from cattle. I think that we shall have to look at how we can vary diets; how we can change grazing patterns; whether we use different grasses. There is work going on now to understand that; but, as I have said, most of the focus of the research and development was not in that area. Now that the understanding of the impacts of climate change is so real and so vivid for us, we realise that we need to put in those resources. One of the reasons why I am so worried about government spend on R&D at this moment in time is because this is long-term R&D work and we need to be helping and stimulating that research and development from farming. I think that we could look at the methane emissions and the way we treat and house cattle, how we look at diets, and we must have some more R&D spend. However, if we did have anaerobic digestion, for example, and we were able to capture and store the dirty waters, the manures and get more stable digestion; if we could incentivise people to inject rather than to sprinkle and spread the dirty water, that again would reduce it. At the moment, we are trying to understand the science of nitrous oxide emissions. Perhaps I may, while I have such a fantastic audience, make another plea, namely about agricultural building allowance. The last Budget made the point that agricultural building allowance should be abolished, going forward and retrospectively. We need a significant amount of investment both in the poultry and dairy sectors, which are good examples, and the pig industry—because of IPPC requirements, because of better emission control for greenhouse gases. And yet, in the UK alone, we have removed agricultural building allowances. In Ireland, for example, you write off a new agricultural building, which hopefully will be significantly more environmentally friendly, at 15% a year for six years and 10% in year seven. I have people who have made significant investments in recent years in new poultry housing in free-range. Because we are going to scale down the use of battery cages over the next four or five years, we need something like 10,000 ha of free-range egg production. Those buildings will not have agricultural building relief, and so they will not be having the smart environmental performance which I think that other countries in Europe will have. We are lobbying really hard in terms of better environmental investment in buildings, where we need that incentive. Otherwise, that production will go elsewhere.

  Q130  Viscount Brookeborough: Perhaps this becomes more important because, with climate change, if we get less cold winters people will be more inclined to keep their cattle out longer. I live in Northern Ireland, and we can obviously put our animals out earlier in the spring and keep them out later. This will therefore be working the other way, whilst we are trying to capture it all and use it in biodigesters.

  Mr Kendall: Equally, there are the extreme weather patterns and how much dirty water we need to store. I need these investments to be encouraged, rather than to find that this can happen in other parts of Europe and not here.

  Q131  Baroness Miller of Chilthorne Domer: Could I ask if you happen to have a top-of-your-head figure for what the Treasury saved by removing that allowance? Do you think you could tell us, just to get an idea of what sort of a saving it is?

  Mr Kendall: It is partly a simplification scheme. Again, when they look at the general processes, they sometimes do not see quite the impact that this will have on better practice. Agriculture and climate change are so important, this is a case for being treated slightly differently.

  Chairman: Let us move on to rural development.

  Q132  Lord Cameron of Dillington: To some extent, we have had conversations about rural development already and you are obviously anti voluntary modulation, for level playing field reasons. We gather that. I get the impression, however, and both you and Martin have mentioned it, that, with the agricultural economy going as it is, you are not against compulsory modulation, providing we keep a level playing field. You have mentioned various areas where Pillar II funds could be used that may be compatible with WTO, et cetera. In a general way, what sort of criteria do you see being applied to Pillar II so that we kept this level playing field and so that it did not become a long-term drug to various parts of this industry, and maybe other rural industries? At the moment, it is divided into four axes. Do you see those remaining? How do you see this being played out?

  Mr Kendall: I will ask Carmen to come in on that, but perhaps I could first speak to compulsory modulation. We have to acknowledge that there are some sectors at the moment, particularly with the recovery of dairy (it is not going as fast as I would like) and also beef and sheep, where to talk about high levels of compulsory modulation—and I know that we are in a decoupled world where it should not be affected—until those market prices respond, we have to be cautious about how far that compulsory modulation goes. However, uniform compulsory modulation is definitely preferable to national modulation.

  Ms Suarez: Concerning the fairness of what we would like rural development to do, I think that the first issue to be addressed is to ensure that there is a fair allocation of the resources of the rural development funds. So far, the criterion that has been used to allocate funds to the different Member States has been on the basis of historical allocations; so problems have become perpetuated over time. That means basically that the UK gets very little, because the UK used to get very little. I think that is probably the biggest issue. On the basis of what rural development is supposed to do—that is, addressing some of the issues that are related to land management and some of the issues that relate also to people living in rural areas—criteria such as the percentage of land that is agricultural land, or the percentage of people living in rural areas, will definitely give the UK a much fairer and definitely much higher allocation of rural development funds. Concerning the axes, it is always very difficult to talk about classification, because any classification, especially of policy measures, ends up being artificial almost by definition. Even now we look at the way in which different programmes are classified as within one axis. Taking the example, for instance, of biodigesters, will they be a competitive-placed measure and therefore something that would fall within Axis 1 of rural development? Or do we consider that the biodigester is being used to provide energy in a village, in a rural area? Is that something that is addressing a problem of infrastructure in a rural area, and therefore could be classified within Axis 3? I do not think that we should get too hung up on the different definitions of the axes. What is certain, however, is that issues of competitiveness in the agricultural sector, land management, and quality of life in rural areas are important, but we should try to look at solutions that can address all those issues simultaneously, without looking too much at the percentage which goes into one axis or the percentage which goes into another. As Peter has already mentioned, it is clear that the importance of land as an input of production is increasing over time, and the importance of the competitiveness of the agricultural sector is definitely very important. It is quite interesting that the UK seems to be out of kilter with other Member States when it comes to the allocation of rural development funds, and has decided to put much less money into competitiveness measures than other Member States. That is probably something that we should call into question. Last but not least, we must not forget that some of the rural development programmes that we have in place are programmes which were designed at a time when the problems that people were trying to target were substantially different to those which we have now. If we think about the Entry-Level scheme or the Higher Level scheme, at the time when they were designed climate change was not the concern that we have right now. Within any process of ongoing review of those programmes, we probably need to look at whether they are really addressing the issues about which we are concerned right now.

  Q133  Lord Cameron of Dillington: In terms of where the programmes are coming from, maybe they should be all three. But should they be pan-European programmes, Member State programmes, regional programmes, even County Council programmes or Parish Council programmes? How do you see that?

  Ms Suarez: "Subsidiarity" is probably the magic word! I think that it is necessary to have a very clear European framework—to avoid, amongst other things, that rural development funds end up doing what they are not supposed to do. The example of the Irish Government using rural development funds implicitly to support production is something that has been very much commented upon. There has to be a very clear framework as to what rural development funds can and cannot do. It is only natural that there will be some degree of flexibility, not only because of different preferences within different Member States but, even going to the regional or local level, it is quite clear that issues such as flood prevention will be more relevant in some parts of the country than in others. A very clear framework, therefore, but some scope for flexibility at the national and regional level.

  Chairman: We turn now to world trade.

  Q134  Baroness Jones of Whitchurch: You have already described to us very graphically the effect that the USA subsidies have been having in terms of the grain market, on a global basis, and we do not know what will happen in terms of the Doha Round. From your perspective, however, what would be a good solution from Doha? I know that we can fantasise—but what is a practical, good solution that would strengthen our hand in terms of the market longer-term?

  Mr Haworth: We would certainly like to see a lot of progress made on the issue of internal support. We think that Europe has done a tremendous amount to make its own support system non-trade distorting. That has not always been sufficiently recognised by our partners, but we have made big progress; whereas the Americans—to use that example, because it is such a flagrant example—have actually moved in the other direction. They have increased the volume of their support and in some cases have made it more trade-distorting. A serious attempt to tackle that in the Doha Round is therefore essential in our view, and one of the few positive things that we could expect from the Doha Round. Farmers in this country have accepted that export subsidies do need to be phased out, and we would like to see that discipline also extended to all countries. They do not always subsidise exports in the same way and they do it in less overt ways, but those too should be phased out. Those are the two biggest issues we would like to see out of the Doha Round.

  Q135  Baroness Jones of Whitchurch: In your evidence somewhere you used the phrase that our position is defensive rather than offensive. Do you think that we have almost become paralysed by what was happening at Doha? That we could almost be doing more outside of the negotiations to boost exports, with or without the export subsidies? Do you think that there is a stronger global market out there that the EU is not really addressing in the interim?

  Mr Haworth: The problem that Europe has, or has had, is that it is a region that has had a high level of internal prices and yet is a major exporter. It is very difficult to see how we can continue that position during the trade liberalisation round. Europe is a large exporter and some of its exports would come from high value-added products, like Scotch whisky, special cheeses, et cetera. By and large, they will find markets whether or not there is trade liberalisation. There is obviously some scope for improving those markets; for example, some countries have differential and unfair taxes on imported alcohol, and those can be addressed. By and large, however, the high value-added products are going to find their markets in any case. Rather, it is the bulk commodities that are the issue. Europe will benefit if global trade is opened up, from the fact that Europe will not be such an attractive market. If the South East Asia markets are opened up, we will see America, Australia and New Zealand targeting those markets more than Europe, and of course we will benefit indirectly from that. Whether there is much that can be done outside Doha is difficult to say. Europe is engaged in a lot of bilateral negotiations which, if the Doha Round does not make progress, will clearly be substituted for Doha; but that is a process which we see as quite a dangerous one, because we will end up with a lot of different bilateral relationships rather than an overall, multilateral framework—which we would prefer. We would prefer it because, first, we do want to see discipline in world trade, and the multilateral process is the only way to get multilateral rules that are respected; that cannot be done at a bilateral level. Second, the multilateral Doha process is the only way to put discipline on subsidies. That cannot be done bilaterally either. By and large, therefore, our strong preference would be to see progress at the multilateral level in Doha.

  Q136  Baroness Jones of Whitchurch: Do you feel that the EU, if you like, bats for you? If you take a specialist cheese manufacturer, they could almost make their own markets. They could literally go round the world to trade markets and try to market their materials. What is the benefit in the EU acting for British farming interests? Do you ever see any advantage? You talked about it being indirect. I wondered quite how indirect it was.

  Mr Haworth: Yes, we would see advantage. Take the specialist cheese as an example. There are very restrictive import terms into the United States, which effectively limits the volume of special cheeses going into America. That is a huge potential market—and one which certainly needs a lot of good cheese, from my own experience!

  Q137  Baroness Jones of Whitchurch: There was a food programme on at the weekend, where there were a whole lot of cheese manufacturers who had gone to a trade place in New York. So they obviously can penetrate?

  Mr Haworth: They can penetrate, but the volume that has been there up to now is limited. That is one thing, therefore. It is clearly better to do that at a European level than it is at a national level. The other big benefit that we can get is in protecting geographic designations, which is a very important issue to some of our partners—the Italians, for example—but which should also be important to us. If we can protect some of the important designations that we have against fraud and mislabelling, that is important.

  Q138  Lord Plumb: In the interests of time, My Lord Chairman—because I know that you will be angry if I ask a question which requires a long answer!—could we ask the President to ask his Chief Economist if she would write to us and tell us what effect currency values have on world trade? I am thinking, of course, of both the dollar and the euro.

  Ms Suarez: With great pleasure!

  Chairman: I think that we could have a very depressing discussion on US trade policy, actually. I think that it will get worse rather than better.

  Q139  Lord Cameron of Dillington: Both you, Peter, and Martin have hinted—with provisos, I agree—that perhaps there is less need for agricultural support into the long-term future. Yet, in your written submission, you say that the CAP needs more funds to deal with enlargement, including Romania, Bulgaria, and so on. It would seem to me that the obvious solution to these two divergent concepts is the principle of co-financing of Pillar I, and yet you are against co-financing. Discuss!

  Mr Kendall: There are a number of issues on co-financing. I suspect that our historical perspective of how the UK has fared with rural development budgets, the arrangements that grew out of the Fontainebleau Accord and what-have-you, have meant that often the UK has been poorly funded. We therefore have a historical perspective that has not always left us with the greatest confidence that we would be co-financed in the same way. I think that there are issues, and we recognise that in the European Commission there are quite strong views on the fact that compulsory co-financing requires changes in the Treaty of Rome, because they become taxation measures—and that would cause real problems for some of the Accession countries, and how they would react. There are therefore some real concerns about how co-financing would come in. Bearing in mind that Commissioner Fischer-Boel has been so strongly in favour of more uniform EU modulation and less national modulation, this would be required to be uniform if it was not to be distorting. We do have some concerns, therefore, that co-financing would need a major shake-up within the EU, and would be unpopular with the Accession countries if it imposed taxation requirements on them; and that, again batting for UK farmers, we would not come out of it as well as some of our counterparts.